Q1 2025 OceanFirst Financial Corp Earnings Call
Hello, everyone and thank you for joining the Ocean <unk> Financial Corp, Q1, 25 earnings call. My name is Marie and I will be coordinating your call today. During the presentation. You can register your question by pressing Star followed by one on your telephone keypad and if you change your mind. Please press star followed they do.
Offered: I will now hand over to your host offered good SVP of corporate development and Investor Relations to begin. Please go ahead.
Speaker Change: Thank you Marie.
Speaker Change: And welcome to the Ocean <unk> first quarter 2025 earnings call I am all for June and SVP of corporate development and Investor Relations before we kick off the call we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website Ocean first dot com.
Speaker Change: Our remarks today may contain forward looking statements and may refer to non-GAAP financial measures all participants to refer to our SEC filings, including those found on forms 8-K, 10-Q, and 10-K for a complete discussion of forward looking statements and any factors that could cause actual results to differ from those statements.
Speaker Change: And I now will turn the call over to Christopher Maher, Chairman and Chief Executive Officer.
Speaker Change: Thank you al.
Speaker Change: Good morning, and thank you to all who've been able to join our first quarter 2025 earnings conference call.
Speaker Change: This morning, I'm joined by our President, Joe Labelle, Chief Financial Officer, Pat Barrett.
Speaker Change: We appreciate your interest in our performance in this opportunity to discuss our results with you.
Speaker Change: This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout this call.
Speaker Change: After our discussion we look forward to taking your questions.
Speaker Change: We reported our financial results for the first quarter, which included earnings per share of <unk> 35 on a fully diluted GAAP and core basis.
Speaker Change: We were pleased to report a second consecutive quarter of growth on both net interest income, which grew by more than $3 million for the quarter and net interest margin, which expanded by 21 basis points. These.
Speaker Change: These improvements were largely driven by deposit repricing efforts.
Speaker Change: Results also included commercial and industrial loan growth of 6% or 24% annualized.
Speaker Change: Total commercial loan pipeline increased to $376 million as of period end.
Speaker Change: Operating expenses for the quarter were $64 million modestly lower than the prior quarter.
Speaker Change: Note that our first quarter operating expenses did not reflect any of the material investments from our recent hiring efforts, which Joe will touch on in a moment.
Speaker Change: Asset quality remained strong as annualized net charge offs were just three basis points, while total loans classified as special mention substandard decreased 5% to $149 million or one 5% of total loans.
Speaker Change: Classified loan levels remain well below our long term average and are substantially lower than our peer group.
Speaker Change: The reserve build for the quarter was primarily driven by an elevated level of uncertainty around macroeconomic conditions.
Speaker Change: Capital levels.
Speaker Change: <unk> remained robust with an estimated common equity tier one capital ratio of 11, 2%.
Speaker Change: Tangible book value per share of $19 16.
Speaker Change: This week, our board approved a quarterly cash dividend of <unk> 20 for the common shares.
Speaker Change: This is the company's 113th consecutive quarterly cash dividend and represents 57% with GAAP earnings.
Speaker Change: Finally, we're very pleased with our progress in launching the Premier Bank initiative, which is growing quickly and should drive organic deposit growth and additional margin improvement in the second half of the year.
Speaker Change: For more color on that initiative and our other businesses I'll turn the call over to Joe for his comments.
Joe Labelle: Thanks, Chris I'll start with the Companys loan originations for the quarter, which totaled $417 million, including $135 million of C&I originations.
Speaker Change: Mercury pipeline nearly double last quarter.
Joe Labelle: It should help build out C&I and more broadly stimulate overall loan growth.
Joe Labelle: It's competitive out there, but as evidenced by the pipeline the recruitment of commercial bankers over the last 15 months.
Joe Labelle: Begun to pay dividends.
Joe Labelle: Turning to our residential division activity remains impacted by uneven loan demand with volatility in rates limited inventory and seasonally low volumes affecting Q1.
Joe Labelle: We remain cautiously optimistic and we are cognizant of the potential impact that economic uncertainty may have.
Joe Labelle: On rates affordability and production.
Joe Labelle: As we turn to the second quarter, we are pleased to announce the on boarding of nine from your banking teams in April these.
Joe Labelle: These teams have a proven track record of managing significant customer portfolios, historically, consisting of lower cost deposit rich commercial relationships.
Joe Labelle: We are optimistic that these teams will have substantial new client wins for the company throughout the remainder of 2025.
Joe Labelle: So it could take two to three years to achieve their full run rate potential.
Joe Labelle: We are also seeing continued success in the hiring of C&I focused commercial bankers.
Joe Labelle: With the addition of six bankers so far this year. These.
Joe Labelle: These new adds are incremental to the 10 C&I bankers, we hired in 2024.
Joe Labelle: As we have done historically, we will continue to identify and hire additional commercial bankers throughout the year when the opportunity arises.
Joe Labelle: Moving to deposits.
Joe Labelle: Excluding brokered Cds balances decreased by approximately 2% compared to the prior quarter, primarily from a run off of higher cost time deposits.
Joe Labelle: We anticipate some seasonality in the second quarter, which should start to see the portfolio growth with new client wins thereafter.
Joe Labelle: Noninterest income decreased 8% to $11 $3 million during the quarter.
Joe Labelle: Excluding noncore and nonrecurring items.
Joe Labelle: Noninterest income decreased 11%.
Joe Labelle: Primarily driven by seasonal seasonally lower title fees.
Joe Labelle: And service charges.
Pat Barrett: With that I'll turn the call over to Pat to review the remaining areas for the quarter.
Pat Barrett: Thanks, Joe.
Pat Barrett: As Chris noted both net interest income and margin grew in the quarter with net interest income increasing by nearly 4% and net interest margin expanding by a healthy 21 basis points.
Pat Barrett: Total funding costs as well as total deposit costs declined by 26 basis points.
Pat Barrett: While loan yields remained essentially flat.
Pat Barrett: While we're pleased with our overall reduction in funding costs, we believe the deposit repricing pace may moderate in the near term.
Pat Barrett: With positive tailwind is expected in the back half of the year as our deposit gathering initiatives began to ramp up.
Pat Barrett: Asset quality remained very strong with non performing loans at three 7% and loans 30 to 89 days past due at four 6% of total loans.
Pat Barrett: While we saw a modest uptick in substandard overall.
Pat Barrett: Overall criticized and classified loans declined 5%.
Pat Barrett: Overall credit quality continued to perform in line with our company's strong historical experience and well below peer group averages.
Pat Barrett: Additionally, we continue to monitor our exposures to industries and geographies for any emerging impact from recent political and administrative policy changes.
Pat Barrett: But to date, we've seen no signs of weakness across our customer base.
Pat Barrett: Despite this we felt it was prudent to increase our allowance for credit losses by just over $5 million, reflecting.
Pat Barrett: Reflecting both the heightened levels of macroeconomic uncertainty as well as a modest shift in loan portfolio mix to higher C&I exposures.
Pat Barrett: Noninterest expense decreased 555000.
Pat Barrett: To $64 $3 million during the quarter driven by seasonally lower title costs with most other expense categories relatively flat to the prior quarter.
Pat Barrett: Compensation expense was partly impacted by a $1 3 million incentive production recognized in the quarter.
Pat Barrett: Looking ahead, we anticipate our quarterly operating expense run rate to increase approximately 10%.
Pat Barrett: Of which $4 million is attributable to the recent premier banking hires this quarter.
Joe Labelle: As Joe mentioned, we remain opportunistic for additional hires that could impact the run rate further.
Joe Labelle: Capital levels remain robust and included nearly 400000 shares repurchased for a total of $6 $9 million and a weighted average cost of $17 20 per share.
Joe Labelle: We will remain opportunistic in repurchasing shares in the near term, but that will be highly dependent on market conditions.
Joe Labelle: And as previously announced we will be redeeming in full our $57 $4 million of preferred stock on may 15th.
Joe Labelle: Finally, a word on taxes, we expect our effective tax rate, which was 24% in the first quarter to remain in the 23% to 25% range absent any changes in policy.
Joe Labelle: This point, we will begin the question and answer portion of the call.
Speaker Change: To ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by two weeks.
Joe Labelle: The bank to ask your question. Please ensure that your devices on muted locally.
Speaker Change: Our first question comes from the line of fracturing Aldi of Piper Sandler. Please go ahead.
Speaker Change: Good morning.
Joe Labelle: Good morning, Greg.
Speaker Change: In terms of the.
Speaker Change: The new teams brought over.
Speaker Change: Any specific sector is targeted here that you can share and then I know it's.
Speaker Change: It's <unk>.
Speaker Change: Obviously, a lot depends on rates and so forth, but just any thoughts about around the <unk>.
Speaker Change: Mix that is likely to come over.
Speaker Change: Terms of.
Speaker Change: Okay.
Speaker Change: Overall costs or.
Speaker Change: Percentage of noninterest bearing any thoughts on that front.
Frank: Frank I'll start with the sectors.
Frank: The teams have a really robust variety of commercial clients and they range anywhere from those clients that are deposit rich law firms title companies too.
Frank: More traditional commercial borrowers that have a variety of credit needs. So I think we're going to see the full range I don't think theres anything that we target is as specific relative to a vertical that.
Frank: Would be either new to us or a concentration.
Frank: Frank I'd just add in terms of.
Frank: Deposit rate expectations, and the weighted average cost of deposits.
Frank: Obviously, you hesitate to give you very specific guidance on that but.
Frank: The portfolios these clients maintain.
Frank: So typically a substantial portion of noninterest that could be 20% plus or minus depending on the team and then the remainder of the funds. They bring over have a market rate, but on the lower end of market right. These are not behind in the market. So when you blend those two numbers together you get a very attractive cost of deposits.
Frank: It varies by team from team to team.
Frank: Okay, Alright, I appreciate that and then.
Frank: Mentioned the opportunity maybe to bring over.
Frank: Additional folks.
Frank: Just curious.
Frank: Timing of bonuses the way that works is that more sort of a 2026 expectation or is there still opportunity here.
Frank: In coming weeks and months.
So Chris I think we're at the tail end of the traditional kind of spring recruiting season. So there may be a couple more opportunities to bring people over but traditionally that's kind of all wrapped up by mid may.
Frank: So a little bit a little bit of opportunity out there but.
Frank: We would probably from that point forward, just kind of focus on execution for the remainder of the year.
Frank: Okay, and if I could just sneak one more in in terms of the expense.
Frank: Increased.
Frank: 10%.
Frank: Run rate 4 million related to these premier groups, just anything else to call out.
Frank: In terms of the.
Frank: The rest of it is it just.
Frank: 10% increases adjust.
Frank: <unk>.
Frank: Investments anything to call out there.
Frank: As far as the nature of the expense, it's really driven by comp expense increases we do have some contracts that are renewing and we will see some inflationary increases, but I would say that does.
Frank: It would be kind of in line with our normal kind of 3% increase.
Frank: On average then.
Frank: There is some occupancy because we have to put these people and places that we don't currently have taken so there is going to be an increase that youll see in that line item as well.
Speaker Change: Gotcha, Okay, Alright, I appreciate it thanks.
Mike: Alright, Thanks, Mike.
Speaker Change: We have a question from Tim Smith Chair of <unk>. Please go ahead.
Tim Smith: Hey, good morning, Thank you for taking my question.
Tim Smith: I have a few follow up on.
Speaker Change: Hey, there Ivy few follow ups on the Premier Bank can you can you maybe walk us through kind of like the messaging.
Speaker Change: The customers on Premier bank versus kind of more classic ocean and what the reception has been so far and people who have joined the Premier Bank.
Speaker Change: When we look at it is we have a variety of service models, we are attuned to a variety of different kinds of clients and some clients love dealing with our kind of automation or a call center.
Speaker Change: That works really well for them other clients.
Speaker Change: Like I would make the comparison like a concierge medicine, right, where you can kind of have a relationship where you have primary doctor you go to all the time and you really value that relationship.
Speaker Change: They're folks by their health care differently.
Speaker Change: Banking, so we want to serve the customer the way they want to be served.
Speaker Change: So Premier Bank Appeals to a certain segment in the rest of our businesses appeal to other segments in neither one is right or wrong, it's just customer preference.
Speaker Change: Okay, how many new customers is this bringing in versus moving.
Speaker Change: Larger legacy customers over into Premier Bank.
Speaker Change: So this would be essentially for the most part I would imagine all of the net new customers to the bank.
Speaker Change: We're not re mapping existing customers, let me of course.
Speaker Change: Over time, if the customer wanted to be handled in a different way.
Speaker Change: We'd certainly be flexible and do whatever they want but the majority of that would be net additions to premier bank.
Speaker Change: Okay got you and then sorry, if I missed this been jumping around calls but can.
Speaker Change: Can you update us on your plans for refinancing the sub debt.
Speaker Change: <unk> after you've paid off the preferreds.
Speaker Change: Sure obviously, the Big thing you already mentioned is the preferred so we wanted to make sure. We got rid of that first that was the most expensive capital we had.
Speaker Change: We're in no rush to do anything about the sub debt, so a little bit more expensive, but it doesn't weigh earnings all that much we're watching conditions in the market.
Speaker Change: We will consider our growth rate and other things over time so.
Speaker Change: We're in a position to refinance that if things get attractive for us, but we're equally comfortable kind of leaving that out there for a bit of time, depending on market conditions.
Speaker Change: And.
Speaker Change: This is Pat I would think about it this way, we kind of preserved any tangible book value.
Speaker Change: Dilution or erosion by repaying or redeeming the preferreds, so kind of the net impact of that cost avoidance.
Speaker Change: Much offsets the increase in the sub debt, which is about a million million and a half a quarter pretax.
Speaker Change: Got it very helpful. Thank you guys.
Speaker Change: Thanks, Dan.
Speaker Change: We have a question from David Vishal I'll follow up please.
Speaker Change: Please go ahead.
David Vishal: Yes, good morning, gentlemen.
Speaker Change: Good morning.
Speaker Change: Hey.
Speaker Change: I'm curious probably more question for Joe.
Speaker Change: Growth in the C&I, obviously was very strong this quarter just curious.
Speaker Change: Does that represent maybe new sectors or segments and types of customers here.
Speaker Change: Being able to book and just curious where that growth was geographically was it broad based or was it better.
Speaker Change: Any specific regions.
Speaker Change: Yes, Thanks, Dave.
Speaker Change: It was broad based which is good although we did see.
Speaker Change: Some concentrated growth in our government contracting business thats fairly new to us.
Speaker Change: Virginia, Maryland, DC Metro but.
Speaker Change: I'd, probably just say overall that we're seeing activity from not only the legacy folks, but also the folks that we put in place over the last year. It typically takes a C&I banker three to six months to get acclimated not only to the way the new bank does business, but also to.
Speaker Change: To convince clients that this was the right place for them and we're starting to see that momentum build and I think we'll continuously I think this is just the beginning.
Speaker Change: Ill just add one of the nice things about the Gulf kind of business for US is we don't have a back book. So we're able to be very selective over the credit risk that we choose to take in that world and.
Speaker Change: For the remaining companies that are quite strong that have could be <unk>.
Speaker Change: Military cyber contracts that kind of work. It was it was very good work to be done there.
Speaker Change: And it's nice to kind of step into that business at a time when we can be very selective.
Got it and then.
Pat Barrett: Pat you noted maybe.
Speaker Change: Maybe waning ability to lean on deposit costs just curious.
Speaker Change: Maybe I don't know if thats the spot rate of average cost to deposits at quarter end, but maybe a near term outlook, where you're seeing maybe deposit costs trending it sounds like there could be some seasonality in there.
Speaker Change: Second quarter that may require you to lead on borrowings.
Speaker Change: Read that right.
Speaker Change: I would say, probably theres not going to be a whole lot of bias one direction or the other at this point.
Speaker Change: Pretty stable outlook in the near term on costs.
Speaker Change: We certainly have the capabilities to lean on wholesale but at this point.
Speaker Change: Don't envision needing to do too much of that.
Speaker Change: And we're hopeful that as the premier banking and additional.
Speaker Change: Deposit gathering initiatives.
Speaker Change: To build and build steam that that'll take any pressure.
Speaker Change: Funding needs.
Speaker Change: Got it appreciate the color.
Speaker Change: You have a question from Christopher <unk> of Janney Montgomery Scott. Please go ahead.
Speaker Change: Hey, Thanks, Good morning, as you execute the new Premier Bank initiative, how much of the customers kind of wallet do you think youll get over time and is that any different.
Speaker Change: You've kind of got closer to the launch compared to what it had been in the past.
Speaker Change: Chris It's Joe I would tell you that the expectation is that over time, we'll get the majority share of the wallet. These are long standing customer relations.
Speaker Change: Which is something that's really attractive to us.
Speaker Change: We talked about earlier I think youll see it come over in time.
Speaker Change: I'll know that sometimes when you have existing loans those take time to mature or reprice and the same thing goes with the operating accounts. It takes a period of time for people to migrate across and run through the run through the activity. If you will.
Speaker Change: The old institution, but I'm, a big believer that these teams have significant followings there.
Speaker Change: They are full relationships and there'll be loyal.
Joe Labelle: Got it and Joe is it fair that some of the teams that may be out there that you may not be pursuing is hard because.
Speaker Change: You may not be having the same visibility to bring.
Speaker Change: If they're full wallet over.
Joe Labelle: That's fair.
Speaker Change: Okay.
Speaker Change: Just trying to delineate between the big opportunity and kind of how much kind of gets narrowed down into the funnel over time.
Speaker Change: Yes.
Speaker Change: I'd add that we view this not only is the driver of margin and earnings over time.
Speaker Change: But a franchise value.
Speaker Change: The higher quality relationships you have on the deposit side, the more durable those deposits or we're not interested in putting dollars on just to put dollars on.
Speaker Change: We're trying to make sure we build a long standing.
Speaker Change: Liability sheet here that makes <unk>.
Speaker Change: That's a lot of franchise value.
Speaker Change: Yep understood Chris Thanks for that and then just one follow up I guess from a credit perspective does this time of year with new financial statements make any difference to kind of how the risk ratings may play out obviously good experience here in recent quarters.
Speaker Change: It does I mean this is as you pointed out this is when we get a ton of tax returns in and things like that although many of them get put on extension. So you'll see a lot of them in the fold as well so.
Speaker Change: But we've seen no trends that.
Speaker Change: That would be concerning we're always thoughtful that thats, a rearview mirror kind of thing.
Speaker Change: Windshield kind of thing, but we.
Speaker Change: We did conduct a survey of our commercial book just to understand not just from what we see in our credit work, but what our customers tell us about their tariff exposure.
Speaker Change: And is it very limited exposure to the first order concern about tariffs.
Speaker Change: I think only about 8% of the commercial book recorded any.
Speaker Change: Meaningful exposure to oil to tariffs and then of those folks the majority about half of those folks thought they could have a reasonable chance of passing along any cost that came to them. So.
Speaker Change: But <unk>.
Speaker Change: Despite surveys and despite underwriting we felt that we really couldnt get it perfectly clear view and Thats why you saw the additional reserve build.
Speaker Change: Adjusting case.
Speaker Change: In an environment too.
Speaker Change: Fairly foggy right now.
Chris: No well stated Chris Thank you very much for sharing that too I appreciate it.
Speaker Change: We have a question from Daniel Tamayo of Raymond James. Please go ahead.
Daniel Tamayo: Thank you good morning, guys.
Yes.
Speaker Change: Yeah.
Speaker Change: Yes, maybe.
Speaker Change: Just going back to to Premier bank kind of longer term goals you put in there the two to three year ramp and how much you expect to get on deposits.
Speaker Change: I'm curious if you guys are thinking about given youre, putting on a lot of expenses kind of immediately it's going to impact profitability, but longer.
Speaker Change: Longer term, where this takes the bank.
Speaker Change: If you have any kind of targets from a financial perspective, where you think that might breakeven relative to.
Speaker Change: Where you would have been before.
Speaker Change: If there is a loan to deposit sorry, a lot of questions in your loan to deposit.
Speaker Change: Thoughts longer term as well.
Speaker Change: So we'll try and take those in pieces. So let me talk a little bit about <unk>.
Speaker Change: Profitability impact.
Speaker Change: First of all it's a significant build that expenses given our overall expense base, it's not all that significant.
Speaker Change: And we're being very careful besides the compensation cost to be very deliberate around other costs things like facilities.
Speaker Change: Pleased.
Speaker Change: These bankers are going to be located in Manhattan, or long island, we had existing branches today.
Speaker Change: One on third Avenue in Manhattan, and one up in Scottsdale that will support those teams, we took a little bit of back office space upstairs from our branch.
Speaker Change: Just to make sure that was inefficient.
Speaker Change: Kind of leveraging of the full service branch.
Speaker Change: We only vision one facility on long island for the teams we've hired to date.
It'd be a modest facility out in Melville did.
Speaker Change: Pending on the hiring.
Speaker Change: Might add another modest facility or two but it's not really going to be a big expense build so when you put all that in.
Speaker Change: Think about the leveraging of the operating environment, we have today.
Speaker Change: It's probably somewhere around the four quarter Mark.
Speaker Change: That you have a little bit of a subsidy to this business.
Speaker Change: And I want to be very careful this is a little art and.
Speaker Change: Not as much science that could be four quarters, it could be five quarters.
Speaker Change: It's hard to tell exactly at that point.
Speaker Change: The margin improvement should have overcome any of the opex considerations.
Speaker Change: And then from there on it takes maybe another year or so to get fully profitable.
Speaker Change: But if you think about the numbers. We gave you today you were talking about operating expense on the additional.
Speaker Change: Customer base, a sub 100 basis points could be 80 to 90 basis points. So the operating leverage here is quite good as you work your way through it and there'll be some modest impact to EPS for the next four quarters, it's not going to be dramatic.
Speaker Change: And we think we kind of turn that around so.
Speaker Change: We felt that a 12 to 18 month payback.
Speaker Change: It's pretty fast.
Speaker Change: To build something so they've got durable franchise value.
Speaker Change: So forgive me if we missed any other part of that question.
Speaker Change: No that was great I guess the only other question when you have a target in mind for where you want the loan to deposit ratio to be.
Speaker Change: Well sure.
Speaker Change: We think about each of our businesses they have very different dynamics around loan to deposit ratio. So the premier Bank has a very low loan to deposit ratios predominantly deposits. Although there is a substantial amount of loans.
Speaker Change: Some of the teams might have a 20% loan to deposit ratio some may have lower.
Speaker Change: It's a very nice complement to our C&I business, which has a high loan to deposit ratio typically they don't our C&I business doesn't self fund.
Speaker Change: So when you put the two of them together you get a really powerful combination so.
Speaker Change: The Premier banking teams.
Speaker Change: We'll keep you updated on this I would not be surprised if the loan to deposit ratio and there is plus or minus 20%.
Speaker Change: Okay.
Speaker Change: And then I guess lastly.
Speaker Change: Just to put a finer point on the expense build you talked a lot about it Pat talked about earlier, but so so we think about the 10% increase.
Speaker Change: That's.
Speaker Change: Off of the but what it is.
Speaker Change: First quarter.
Speaker Change: First quarter, which makes it a little bit yeah yeah.
Speaker Change: Okay. So at 10% on the $64 three in the second quarter and then.
Speaker Change: Any other kind of incremental build that we should expect going forward or kind of how you were thinking about expense growth. Prior to this announcement is still about still makes sense.
Speaker Change: That's what's baked for the folks that we have onboard today.
Speaker Change: A few more additional bankers may come up a little bit but.
Speaker Change: It's a good news item and we report that in July if that happens.
Speaker Change: That may or may not happen.
Pat Barrett: Danny This is Pat I'd use I'd use 60.
Speaker Change: Six.
Speaker Change: As a run rate because we did have a year end incentive comp true up.
Speaker Change: <unk> made our comp expense lower in Q1.
Speaker Change: So you add that back and that should be your base.
Speaker Change: Okay, so 10% off of $66 million in the second quarter and then <unk>.
Speaker Change: Sumit no other hires kind of normal.
Speaker Change: Call it mid single digit.
Speaker Change: Growth rate off of that and then if you did have more hirings and then that would be incremental.
Speaker Change: Yes on the incremental for more hirings, I don't think that Youll see a steady increase from that second quarter run rate I think it will be relatively stable. So I think we'll see a fair number of annual inflationary increases that will roll through by mid by the middle of the year.
Speaker Change: And those are all within the 10% guidance, we've given you wouldn't be on top of that.
Speaker Change: There's going to be some timing issues, we're kind of in the middle of adding to all of this so these are not as precise as we would normally.
Speaker Change: Have them.
Speaker Change: But we'll fine tune that as we kind of move through into the second second quarter earnings.
Speaker Change: Got it.
Speaker Change: So I guess back of the envelope that.
Speaker Change: Youre going to be kind of.
Speaker Change: Maybe 73 million ish for the rest of the year.
Speaker Change: It sounds like it's in the ballpark.
A little bit maybe a little bit lower.
Speaker Change: 70% 71, probably.
Speaker Change: Got it okay alright.
Speaker Change: Alright, thanks for all the color I appreciate it.
Speaker Change: Thank you.
Speaker Change: We have a question from Matthew Breese.
Speaker Change: Stephens Inc. Please go ahead.
Matthew Breese: Hey, good morning.
Matthew Breese: Okay.
Matthew Breese: I was hoping with the premier teams and the anticipated deposit growth could you give us some help on how we should think about the overall balance sheet size.
Speaker Change: With the growth is it a one for one increase or you expect reductions in some of your higher cost funding categories. If so kind of just frame for us what you'd like to bundle.
Speaker Change: Our guess is that this is a guess at this point and that is because it depends a little bit on quality loan demand.
Speaker Change: No.
We get the loan demand, we'd like pipelines are pretty good.
Speaker Change: Can imagine some balance sheet growth, but it would be a mix of balance sheet growth and remix under the covers.
Help us kind of optimize our capital position, we have some capital out there if we want to do things like buybacks.
Speaker Change: And if we're in a very volatile environment, it's very difficult to give you any longer term guidance around loan growth beyond Q2, if loan growth were to be flatter.
Speaker Change: It's okay too because we can just use these deposits to redeem higher cost deposits and still make margin improvement out of it. So we have nice optionality here.
Speaker Change: But my guess is that if loan demand stays steady which is a giant.
Speaker Change: Think of it as half of it going to deposit remix and half of it going to net balance sheet expansion.
Speaker Change: Okay.
Speaker Change: I don't think teams are going be brief.
Speaker Change: Metro New York City based on Island base.
Speaker Change: Any of them have a more national kind of customer focus our national business line focus.
Speaker Change: No I would say just like our existing clients here that we have today, we have an occasional clients who has a business that may have other facilities in Georgia, Florida, Texas, we banked them wherever they are so we've done that in many many cases already.
Youre going to see the same thing just a very small number of clients who may have maybe they have an investment in California, or something and we will follow them.
Speaker Change: But the vast majority of this is really.
Speaker Change: New York Metro centric.
Speaker Change: Got it okay. Yeah, that's what I was looking for and then the last one from me is.
Speaker Change: Obviously, there is more of a C&I focused in commercial real.
Speaker Change: Estate has been deemphasizing to some extent here did.
Speaker Change: Could you just update us on what your current CRE concentration is where you'd like it to be and do you foresee any sort of kind of bulk sales.
Speaker Change: Kind of help get you there it sounds like the environment from a pay off in competitive standpoint is a bit more friendly tonight.
Speaker Change: I'd say, a few things about that Matt and then I'll ask Joe to chime in as well.
Speaker Change: Very happy with our CRE business, we have allowed it to drift down a bit to the CRE concentration at the bank level is $4 16 at the holding company level. It's below four it's $3 93.
Speaker Change: And interestingly, that's not necessarily because we're trying to drive to a certain number but you'd be surprised how much competitive pressure. There is in the market now for CRE loans, and making sure you can get good structures and good pricing.
Speaker Change: I look at this and say, we're not on any drive to achieve a certain CRE ratio. We've managed it very prudently you can see that in our credit numbers you can see that in our minimal exposures. We do not have an exposure to rent stabilized multifamily we have negligible exposure to the central business District office all segments of <unk>.
Speaker Change: Performing really well so we're happy with it in some ways actually.
Speaker Change: Actually bring that up a little bit over time, if we had the opportunity to do it with high quality loans at good structures, what youre seeing in that concentration drifting down.
Speaker Change: Is.
Joe Labelle: Let's quality structures and more competitive pricing so Joe maybe.
Joe Labelle: Some description of what you guys have seen in the market because it's kind of puzzling.
Joe Labelle: Matt I think I'd, just I'd frame it this way.
Joe Labelle: Our CRE folks are out looking for business, we're not holding back we're not telling them.
Joe Labelle: We're not interested in diversity is your friend so geographic diversity.
Speaker Change: <unk> diversity property type diversity is valuable to us I think we've made that pretty clear over time that is one of the reasons. The books managed and done so well so I think the comment and Chris talks about competitively.
Speaker Change: We're starting to see even though we're not in this space leased class B office is a good example, in New York City.
Speaker Change: There is a lot more activity in class B after the big runs the class eight over the last 24 months, we find it fascinating.
Speaker Change: I can't pinpoint why theirs.
Speaker Change: Leasing absorption in this market. It just could be that there is people coming back to offices not something we're chasing but it is very competitive we've lost a couple of transactions, which are okay for us.
Speaker Change: People pricing in the fives.
Speaker Change: It's not it's not our cup of tea, but that's okay, we'll use those dollars in.
Speaker Change: And put them elsewhere in C&I or in better price CRE.
Speaker Change: So add to that may yet.
Speaker Change: <unk> about whether we would kind of derisked by the sale of loan pools.
Speaker Change: Do not anticipate doing that I think that would be pretty unlikely.
Speaker Change: Would direct you to page 14 of our supplement slides.
Speaker Change: Have a back book of about $1 billion to Rolling this year and next that is rolling off of $4 three one blended rate.
Speaker Change: Think theres an opportunity to.
Speaker Change: To get some earnings momentum out of that.
Speaker Change: So that's got a 431% rate, but if you look at the debt service coverage ratios on that page the maturity wall for 2025 that serves at $1 70 and for 2026 at debt service of $2 30.
Speaker Change: We've been through we stress these loans those loans can roll and cover their debt service and we can get paid better on them. So our bias would be keep the customers roll the loans and improve our margin.
Speaker Change: It could be a significant pick up just from that.
Speaker Change: Two.
Speaker Change: Okay, I guess that leads to.
Speaker Change: This is the last one.
Speaker Change: Why not a more positive bias on the on the NII outlook granted we're just looking at <unk> for the presentation, but.
Speaker Change: It feels like if there is if there is movement in deposit costs, it should be lower especially with the new teams to your point on the repricing on fixed assets its positive.
Speaker Change: When.
Speaker Change: It's not <unk> when do we start to see that inflection point in the NIM and NII just from the simple mechanics of repricing.
Speaker Change: Fixed assets and deposits.
Speaker Change: And so we expect we're going to see additional margin expansion in the second half of the year.
Speaker Change: As you pointed out we're being very conservative about not giving you a specific guide on that.
Speaker Change: Yes.
Speaker Change: Watching what's happening in the markets.
Speaker Change: We understand fed policy is going to come into this.
Speaker Change: If you do wind up seeing fed cuts during the year I think we've got a real material opportunity because you start to pile. These things on each other fed.
Speaker Change: Fed cuts help us Premier Bank helps us the back book helps us so I think of ourselves into $2 90 margin now, which has virtually no purchase accounting thats kind of a real margin as we go into the back half of the year and into next year, you can start to see a glide path to get you back above 3%, that's the point at which earn.
Speaker Change: He is really starting to build nicely, but we would hesitate to give you any specific guidance given.
Speaker Change: All of those kind of open questions. So we'll just keep updating it through the year, we'll watch it but I think as you pointed out.
Speaker Change: Most of those factors lean to the positive for us.
Speaker Change: I'll leave it there thanks for taking my questions I appreciate it.
Speaker Change: Okay. Thanks, Matt.
Speaker Change: You have a question from Manuel now boss of D. A Davidson. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hey.
Speaker Change: Good morning.
Speaker Change: What is the current book of business for these new hires at past institution.
Speaker Change: So it falls right in that range and where we see this upon maturity, so youre thinking somewhere between two and $3 billion today.
Speaker Change: Call. It two five it's pretty close to the book of business that they had at their former.
Speaker Change: Places.
Speaker Change: So any new hires just kind of builds that target a little bit higher.
Speaker Change: Correct.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: You never we've been hiring bankers for a long time, they never put a 100% of their former book.
Speaker Change: Pull a good percentage of it and then they bring new bookings because that's what they do and so I think in a couple of years to be able to get.
Speaker Change: Get back to where they were.
Speaker Change: If we get to those targets that could be 20% plus of your deposits.
Speaker Change: Would you reevaluate at that point, how big this premier bank could get.
Speaker Change: Prior institutions got very large doing that and we have key recruiter that could continue this process for years what.
Speaker Change: What are your kind of thoughts for the long term growth.
Speaker Change: You hit it on the head this is a long term investment for us.
Speaker Change: We're going to keep building this business.
Speaker Change: The only thing I would add to that though is that.
A fundamental risk control here is not having a concentration of anything.
Speaker Change: If you think about our CRE book is spread among five states no big asset classes.
Speaker Change: Concentration kills so we're going to grow the Premier Bank, we think quickly and effectively we think it's going to be a great opportunity for us, but we're going to grow the rest of the bank too. So we're going to grow our consumer bank, we're going to grow.
Speaker Change: Our C&I led teams.
Speaker Change: You probably also see growth in CRE over there.
Speaker Change: So.
Speaker Change: I think when you add all this stuff together. This just helps propel our growth rate to a higher number.
Speaker Change: Environment were less volatile we might give you more specific guidance about that.
Speaker Change: Okay.
Speaker Change: In the Premier Bank model for the 19th.
Speaker Change: Are there any differences or improvements on product our cost here versus what they had prior institutions.
Speaker Change: And there are it's.
Speaker Change: Interesting to us as we bring bankers over from a variety of institutions. They are typically surprised that the capabilities, we have and we built over the years when.
Speaker Change: When you think about the last few years, one of the big benefits of US trimming. Our branch network is our ability to invest in technology and back office. So.
Speaker Change: It's really nice to see bankers, who come to us from larger banks that are surprised and impressed with our treasury sweep the surprise.
Speaker Change: Positively with the quality of our information technology. So I think the customer experience is actually a little better and they love that.
Speaker Change: So that's probably the most significant thing I would mention in terms of compensation plans.
Speaker Change: I think as you build a diversified business you have a variety of different compensation plans for different businesses in different segments.
Speaker Change: We have incorporated into all our compensation plans is risk management principles. So we don't aggregate.
Speaker Change: Too much of an asset or create a volatility around interest rate risk for funding risk liquidity risk.
Speaker Change: We've kind of put some tweaks and made things our own.
Speaker Change: But we have a number of different compensation plans that are highly targeted to the businesses that are being run in the premier business Thats. There is extremely close connection between the compensation levels of those bankers.
Speaker Change: Quality and size of the portfolio they manage a very direct correlation.
Speaker Change: Shifting over to loan growth for a moment.
Ken: Ken This is mid single digits expectations for the second quarter.
Ken: With continued Premier bank progress become a more normalized rate, especially with the ramp and the pipeline you've already seen.
Ken: Sure.
Ken: One of the advantages of having.
Speaker Change: Higher and higher quality deposits is it allows us to be a little bit more aggressive on pricing on the lending side and look it's a tough market out there Joe mentioned, that's pretty competitive. If you are trying to win new clients you have to have a sharp pencil and having.
Ken: Having lower cost deposits actually enables us.
Speaker Change: To keep that credit discipline that we think is so important.
Ken: But when new clients by doing it with a sharp pencil.
Speaker Change: And a shift in topic a bit.
Speaker Change: With growth potentially picking up during the second into the second quarter, you were able to buyback.
Speaker Change: Just under 1% of shares in the first quarter, you talked a little bit about buybacks, continuing potentially continuing or do you kind of see where the balance buybacks versus growth.
Speaker Change: Kind of near term.
Speaker Change: Sure.
Speaker Change: So I think.
Speaker Change: One of the significant things as are having resolved our preferred shares outstanding we had been kind of I wouldn't say hoarding, but setting aside capital to be in a good position to do that when they re priced.
Speaker Change: With that now resolved and kind of off the table.
Speaker Change: We've got different options around capital management.
Speaker Change: We're thrilled that we bought back 400000 shares at 90% of tangible book.
Speaker Change: It's accretive to book, it's accretive to earnings just a wonderful thing. So we have $1 2 million shares.
Speaker Change: Remaining in our authorization.
Speaker Change: And if conditions stay like this I would expect to be active in the market.
Speaker Change: And.
Speaker Change: If we can do both things.
Speaker Change: Great Optionality around the mix shift in deposits means if we don't want to we don't have to build the balance sheet. We can just build more and more profitable bank at this size and then use the capital getting thrown off from that.
Speaker Change: To repurchase shares.
Speaker Change: We have a lot of levers here, we really like the position we're in.
Speaker Change: Looking forward to playing it out.
Speaker Change: Or retire sub debt.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Right right I appreciate the commentary thank you.
Speaker Change: Thank you.
Speaker Change: We currently have no further questions I will hand back to Christopher Maher, Chairman and CEO for closing remarks.
Speaker Change: Thank you before we close the call I wanted to remind everyone that our annual meeting of stockholders will be held virtually on may 19th at eight o'clock am eastern time.
Speaker Change: Encourage stockholders of record on March 25, 2024 to review the proxy materials and vote your shares.
Speaker Change: Appreciate your time today and your continued support of Ocean for <unk> Financial Corp. We look forward to speaking with you during our annual stockholders meeting on May 19. Thank you.
Speaker Change: This concludes today's call. Thank you all for Chinese you may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yeah.